Starting a business and stuck on how to form an LLC in South Dakota? When starting an LLC for your first time, there are a lot of questions and uncertainty. Fortunately, I have a step-by-step guide to help you through the process, in addition to answering some common questions.
What is an LLC?
The Limited Liability Company (LLC) is a popular entity structure for many businesses starting in the state of South Dakota. The LLC provides personal liability protection and has the potential to save money on taxes. With our step-by-step guide, you can learn how to form an LLC in South Dakota without an attorney.
Unlike a sole proprietorship or partnership, where the small business owner can be personally liable for lawsuits against the business, the LLC is a separate legal structure that helps to protect the business owner’s personal assets.
Besides asset protection, the Limited Liability Company provides several other benefits over the sole proprietorship, partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
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Steps to start a South Dakota LLC
Let’s break down the steps to complete the South Dakota LLC formation process.
Step 1: Choose a Name for the LLC
The first step in forming a South Dakota Limited Liability Company is to make sure the name you want is available.
It’s critical to do a name search before registering an LLC name, as the name of each LLC must be distinguishable from other entity names registered in the state of South Dakota. The South Dakota Secretary of State makes it easy to search and verify if your LLC name is available. Learn how to do a no-cost South Dakota LLC name search.
In addition to the name being unique, the entity designator (identifier used at the end of the business name) must be either:
– Limited Liability Company
– Limited Company
Additionally, Limited can be abbreviated as Ltd. and Company abbreviated as Co.
A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are both acceptable.
If there is an LLC name you want to use, but you are not ready to register the LLC, the Application for Name Reservation can be filed with the Secretary of State to hold a name for up to 120 days.
Before settling on a name, you may want to do a domain name search to try and match your business name and website address.
Step 2: Appoint a South Dakota Registered Agent
Every LLC in South Dakota is required to have a registered agent. A registered agent will act as a central point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
The basic requirements to be a registered agent in South Dakota include:
– The agent must be a South Dakota resident at least 18 years of age or a commercial registered agent service with a registered office in the state.
– The agent must have a physical address in the state (PO Boxes aren’t allowed).
– The agent must generally be available during normal business hours at the address provided to receive service of process.
Learn more about the requirements for a registered agent in South Dakota.
An individual meeting the requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed. Hiring a commercial registered agent service like Northwest Registered Agent will help keep the owner’s names from being listed on the state’s website.
Step 3: File the South Dakota Articles of Organization
The paperwork to officially create an LLC in South Dakota is called the Articles of Organization. To submit the paperwork, either file online through the South Dakota Secretary of State’s website. If you prefer to fill out and mail the application, download the Articles of Organization Form.
When filling out the Articles of Organization, a few sections and terms can be confusing. Let’s go over a few of these sections to help get your LLC started right.
Principal Address – In this section, enter the street address, city, state, and zip code of the initial principal office. This address can be the LLC’s physical address or the address where the business records are stored. You may not use a PO Box for the designated office. There are also fields for a phone number and email address and is not often provided as the phone number becomes public record. The email is required and is the address where the Secretary of State will send notifications when annual reports are due.
A mailing address is needed, and it can be the same as the principal address. If the LLC records should be sent to a different address, enter that information in the Mailing Address Section. If the address is the same as the principal office, click on the “Use this address as the Mailing Address also” box to copy the Principal Address address.
Organizer(s) – An LLC Organizer is someone involved with the formation of the Articles of Organization. The Organizer may or may not become a member, such as a mentor, attorney, or accountant, but any LLC member can be listed as an organizer.
For most LLCs, the members will also be the organizers.
Period of Duration – In this section, you can indicate how long the LLC will remain in existence. Most LLCs will choose a Perpetual duration; however, some businesses (usually investment-related) will have a specific closure date.
Delayed Effective Date – If you want the LLC to start immediately, leave this field blank. If you want the LLC to start later, enter a date less than 90 days in the future. The main reason for delaying the LLC start date is when the filing is made close to the end of a calendar year, but the business isn’t going to have any activity until the start of the next year. You can eliminate the need to file a partial-year business tax return by delaying the start date until the following year.
Management – This section asks if the LLC is Member-Managed or Manager-Managed.
– Member-Managed LLCs have an active involvement in the management and have the authority to act on behalf of the LLC.
– Manager-Managed LLCs are hired by the members to run the LLC, similar to a CEO of a corporation. This is generally used when there are passive members in the LLC, and the members do not actively manage or operate in the affairs of the business.
Most LLCs are Member-Managed.
Beneficial Owner(s) – This is an optional section, and each member of the LLC is typically considered a beneficial owner. Entering their names with the LLC filing puts their names and address on public record.
What To Do After Forming A South Dakota LLC
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a South Dakota LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- Members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Obtain an EIN
If the LLC will hire employees or is owned by more than one member, an EIN is required.
The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
If an Employer Identification Number isn’t required, the LLC can use either the owner’s social security number or register for an EIN.
Related: How to Apply for an EIN
Open an LLC Bank Account
Opening a bank account for your LLC is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Occasionally, a bank will request a South Dakota Certificate of Good Standing to prove the LLC is active and in good standing with the state.
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits needed before starting a business. Some common registrations include:
- Business License – Some cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
- Sales Tax License – In order to sell products and certain services, registration with the South Dakota Department of Revenue will be necessary.
File the South Dakota LLC Annual Reports
LLCs are required to file an annual report with the South Dakota Secretary of State. There is a $50 state fee for filing the South Dakota Annual Report (Form CL-1), which is due by the last day of the anniversary month of the LLC. For example, an LLC formed on November 5th, 2021, would have its first annual report due on November 31, 2022.
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South Dakota LLC FAQs
How much does it cost to start an LLC in South Dakota?
The state filing fee to start an LLC with the South Dakota Secretary of State is $150 to file online.
How long does it take to start an LLC in South Dakota?
South Dakota LLCs that are formed online are processed immediately with the Secretary of State, while mailed-in forms can take 5-7 business days.
Is there a yearly fee for an LLC in South Dakota?
Each year, an annual report and $50 annual report fee will need to be sent to the South Dakota Secretary of State.
Who can be a registered agent in South Dakota?
Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state of South Dakota, and are generally available to receive documents during normal business hours.
What kinds of permits and licenses does your LLC need?
It’s sometimes thought that the LLC and business license are the same in South Dakota, but they aren’t. An LLC is referred to as a business entity, which is how the business is organized to conduct business. A business license is approval from a government entity to operate legally.
Most businesses in South Dakota will need to register with a variety of government agencies. South Dakota business license requirements are based on what the business does or where it is located in the state, not on the type of entity.
What is a Foreign Limited Liability Company?
A foreign LLC isn’t a special type of LLC. Instead, it’s an LLC that was formed in another state that wants to operate physically in South Dakota. Physically operating means having a presence, such as having an office or hiring an employee.
What is a Professional Limited Liability Company?
Businesses that require occupational licensing in South Dakota, such as accountants, attorneys, veterinarians, etc., can register for a Professional LLC (PLLC), but it is not required.
Is an LLC the same as a corporation?
Is South Dakota the best state to form an LLC?
It’s generally best to form an LLC where you reside and will be doing the work, however, there may be reasons to form one in another state.
What is a beneficial owner of an LLC in South Dakota?
A beneficial owner of an LLC in South Dakota is an individual or entity who owns or controls the LLC. The beneficial owner is commonly the LLC members or managers.
The beneficial owner may also be a person or entity who is not a member or manager of the LLC, but who owns or controls the LLC through another entity. The beneficial owner’s interest in the LLC may be direct or indirect. The beneficial owner’s interest in the LLC may also be evidenced by a contract, trust, or other agreement.